The Supreme Court of India (Supreme Court), has held notional fixation of loading, unloading and handling charges (collectively referred to as ‘handling charges’) at 1% of the Cost, Insurance and Freight (CIF) value of imported goods, contrary to the provisions of the Customs Act, 1962 (Customs Act).
Rule 9 of the erstwhile Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (erstwhile Valuation Rules) was amended vide Notification No. 39/9 dated 5 July 1990 to provide for mandatory levy of 1% of the CIF value of imported goods, towards handling charges for customs duty. Wipro Limited challenged this notification as arbitrary and ultra vires of Section 14 of the Customs Act, which provides for levy of customs duty on the transaction value actually paid or payable for the imported goods.
The Supreme Court held that this notional charge was arbitrary, irrational and violative of Article 14 of the Constitution of India, as it had no nexus with the transaction value. The Supreme Court further held that this provision would have to be read down to be applicable only in cases where actual handling charges were not ascertainable.
The Supreme Court also observed that although this judgment had been passed in respect of the erstwhile Valuation Rules, the fundamental concept of nexus to transaction value would remain the same even under the new Customs Valuation (Determination of Price of Imported Goods) Rules, 2007.
In light of the Supreme Court’s decision, the existing provisions of the Customs Valuation Rules, 2007 providing for 1% handling charges will also have to be read down to be applicable only in those cases where the actual amount of handling charges cannot be ascertained.
This judgment would benefit the importers of high value consignments on which handling charges levied by the port/airport authority are less than 1% of the CIF value. Also, consignments shipped under CIF liner out/DDU/DDP terms would now not be subject to additional handling charges.